Saturday, July 16, 2022

Ericsson to court: Colombia "account[s] for approximately 0.2% of Apple’s worldwide sales"--but here's why the preliminary injunction still matters

Further to an order by Judge Rodney Gilstrap (United States District Court for the Eastern District of Texas), Ericsson has filed its opposition to Apple's emergency motion seeking antisuit damages as well as an extraterritorial discovery order that I hadn't even mentioned before (the Colombian preliminary injunction is already having impact on the market and therefore draws far more attention). It's so outlandish that I still can't imagine it will go anywhere, but what it comes down to is that Apple wants the Texas court to authorize Apple to provide confidential documents from the Texas FRAND case to its Colombian counsel...

Here's Ericsson's filing in preparation of the Thursday (July 21) motion hearing:

I already expressed my doubts about the prospects of Apple's motion and the strength of Apple's arguments when I published the motion as well as in a subsequent post on dual standards.

It was almost a euphemism when I described as an "apples-to-oranges comparison at best" that Apple's attempt to persuade the Texas court that the circumstances here resembled those under which an anti-antisuit injunction in Ericsson v. Huawei came down last year. Ericsson's opposition brief argues it's actually worse and Apple now wants the Texas court to enter the kind of antisuit injunction that a Chinese court had granted Samsung against Ericsson, in response to which Ericsson requested and obtained an anti-interference or anti-antisuit injunction. As Ericsson's filing points out, last year's Texas AASI didn't prevent infringement proceedings from continuing, or infringement rulings from being enforced, in all jurisdictions. Much to the contrary, the Texas court sought to defend infringement actions from foreign interference.

I found it "telling[]" that Apple applied the Unterweser antisuit injunction factors while denying that it's seeking an antisuit injunction. Ericsson's brief also notes that inconsistency. Instead, the focus would have to be on the traditional injunction factors.

Another issue with Apple's motion that I had raised before and that Ericsson's opposition filing addresses is that the Texas case simply isn't guaranteed to result in a binding license agreement, which the Texas court had clarified before (even twice).

In response to Apple's "coercion" argument, Ericsson notes that its last licensing offer "is still on the table, and Ericsson has not increased that offer since obtaining the injunction." A related footnote then states the following:

"Moreover, Apple’s 'coercion' argument ignores that Colombia is a very small market for Apple, accounting for approximately 0.2% of Apple’s worldwide sales. See Ex. E (filed under seal)."

The Colombian PI still matters. It obviously does in Colombia (for example, see the infographic in this article). Ericsson is pursuing injunctions in other jurisdictions as well. But even in the global licensing dispute, a loss of 0.2% of potential sales is relevant, and that's because the amount Ericsson is asking for ($5 per iPhone) is also far less than a percent of Apple's sales.

If, in theory, Ericsson managed, by demonstrating patent infringement and showing that its own conduct was FRAND-compliant, to exclude Apple from a few markets the size of Colombia, and not just in the form of a preliminary injunction but actually in the long run (permanent injunctions), a license would already be a better deal. While sales and profits are different things, Apple's margins are sky-high, so the difference in Apple's case is not that great--and Apple extracts a lot of revenue out of its customers subsequently to the sale of a phone, especially through its infamous app tax. So the opportunity cost far exceeds the profits made with the sale of one device, also because a user who migrates from iOS to Android may not switch back (I actually migrated from Android to iOS a few years ago, and remigrated to Android last year, but most people wouldn't do that).

Let me dedicate just one paragraph to the app tax topic here. Apple is facing class actions over its App Store terms that it may not be able to settle as cheaply as with certain "developer plaintiffs" in the United States. Even in the U.S., the Pepper case remains interesting; a UK consumer class action has passed a legal and factual plausibility test by a competition-specialized court; and a similar action has recently been brought in Australia. Just imagine what it would mean if Apple had to pay out money to end users after being found to have illegally overcharged them. Developers are just serfs in Apple's Hermit Kingdom, and Tim Cook's deposition in Oakland last year made it clear that he doesn't give a damn about whether developers are satisfied with how Apple treats them, but Apple does care about end users (who could alternatively buy Android devices).

It's really a mystery what Apple hopes to achieve through that "emergency motion" in Texas. It's really hard to see how Judge Gilstrap would grant it. In the next step, Apple could try to appeal a denial to the Fifth Circuit, but that would take time, and in the meantime the Colombian case will be closer to a decision on the merits and the Texas FRAND case will have gone to trial.

On a somewhat related note, I read that Ericsson didn't meet some expectations with respect to current licensing revenues. I don't hold shares in Ericsson, but if I did, I'd actually be more concerned if they left money on the table at this stage. It's a now-or-never situation for reaching a more reasonable royalty level. It may take time before a company like Apple settles, but it will literally pay dividends in the long run to reject offers that undervalue one's patents.